CRITICAL: Whole life costs should be priority?
Vehicle whole life costs should be the critical basis on which fleet operators select which company cars to operate, fleet experts have claimed.
Dan Rees, Senior Manager at Deloitte Car Consulting, and Andrew Cronin, Key Solutions Manager at GE Capital UK, claimed whole life costs are key.
However, evidence presented suggests as few as one in five organisations use such a strategy to compile company car choice lists.
The pair were speaking at an Association of Car Fleet Operators (ACFO) seminar held in association with Motorexpo, the world’s largest free-to-visit motoring event.
At ‘Fleet Management in a Changing World’, held in Canary Wharf, Mr Rees said whole life costs were critical as they highlight the long-term costs of a vehicle.
Cars may cost the same in terms of list price or monthly lease rental, he said, but differ greatly in terms of cost per mile to operate.
“The cost difference can build up over the lifecycle of a car,” he said.
“The principle of basing choice lists on whole life costs can help both employers and employees.
“For employers it can save money, and for employees, even if the whole life cost figures on two models are identical a different CO2 emissions figure will influence the level of benefit-in-kind tax due.”
Mr Cronin added: “Basing company car policies on whole life costs means naturally excluding the worse performing cars so organisations are naturally managing their risk.”
However, Mr Cronin highlighted that GE’s ‘Company Car Trends’ report revealed many organisations ignored whole life costs in drawing up vehicle choice lists.
Asked to highlight criteria used in setting company car choice lists, only 20% of respondents used whole life costs in 2013 compared with 29% three years ago.
That compared with 70% who said they used a CO2emissions limit, while other factors influencing choice list compilation included fitness for purpose, vehicle lease rates and safety features.
“Whole life costs generally favour low CO2 emissions cars so support corporate carbon reducing policies and reward drivers in terms of the benefit-in-kind charge,” Mr Cronin said.
“Presently 40-45% of our customers use whole life costs.
“If you don’t use this process then it is worth considering.”
Also highlighted was the confusion as to what data to include when using whole life costs to compare the fleet operational viability of individual cars.
One figure frequently not included is employers’ Class 1A National Insurance contributions paid on the value of benefits-in-kind such as company cars.
“Class 1A National Insurance is a key part of fleet costs, but not often considered,” Mr Cronin said.
“If the lease rate of two cars is £10 a month difference then the car with the higher cost will not be considered and the same criteria should apply to Class 1A National Insurance.”
Mr Rees added ‘tax was a fundamental part of whole life costs’, suggesting fleet decision-makers should also take into account the impact of capital allowances and VAT recoverability.
Image courtesy of nate steiner, with thanks.